A Comparative study on the influences of Environmental Factors on the Accounting Systems and Practices in Singapore and Canada


                        A Comparative study on the influences of Environmental Factors on the Accounting Systems and Practices in Singapore and Canada


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A Comparative study on the influences of Environmental Factors on the Accounting Systems and Practices in Singapore and Canada

Table of contents

1.0  Summary

2.0  Factors that influence Singapore

2.1 Legal system

2.2 Financing method

2.3 Inflation

2.4  Quality of education

3.0 Factors that influence Canada

3.1 Capital market

3.2 Financial reporting system

3.3 Legal system

3.4 Political

3.5 Quality of accounting

3.6 Level of inflation

3.7  Taxation system

4.0 Dimension values

4.1 Professionalism versus statutory control

4.2Uniformity versus flexibility

4.3 Conservative versus Optimism

4.4 Secrecy versus transparency

4.5 Long term versus short term

1.0 Summary

Accounting systems in a country is able to influence the economic environmental and at the same time it is able to promote decisions made in business. Different parts of the world follow different patterns of accounting and they are mostly determined by the environmental factors. Comparative study on the influences of the environmental factors brings awareness of the factors that have influenced the accounting development. It also helps in the international promotion of economic integration and harmonization of the accounting systems. This helps the policy makers to predict the changes and problems that may occur in a certain country if there is change in the environmental factors. The solutions to the problems can be easily identified because the policy holders have the experience of other countries which share the same development patterns.  The study below contains the factors that shape the accounting system in Canada and Singapore. Canada uses the Anglo- American Accounting which is different from the method that is used by Singapore which is the Asian Accounting.

The factors that affect Canada include capital market which involves the details of funding of businesses in the country. The different types of funding has been explained which could be through the banks and through the external sources which may be from the stakeholders. Another factor that influences the accounting system is the financial reporting system which affects the report that is presented. The accounting system in Singapore affects the processes that are used in the accounting to come up with the financial reports for the users. Political system is another factor that has shaped the accounting system in Singapore. This mainly happens to the countries that were colonised and they tend to use the accounting system of the countries that colonised them. The other factor is the legal system in a country and it mostly affects the reporting systems and the taxation systems of the country. The study also contains the factors that have affected Singapore in shaping and influencing the accounting systems. Dimension values that are used in the comparison of the accounting system are also explained in the main body of the essay.

2.0  Factors that influence Singapore accounting system

2.1 Legal system

In Singapore, the Asian accounting system has been used in harmonization of the accounting system, and there are factors that have affected the accounting systems in the country. The legal system of a country is one of the major factors that affect the accounting systems and practices that are used. The legal system is divided into two which is the civil law system and the common law system. This affects the accounting standards and the accounting principles of a country and they differ from different countries. The disclosure practices of different accounting standards are affected by the legal systems on the financial accounting disclosure as suggested by Williams, (2000). The legal system can be experienced in the company law where the rules that are supposed to be followed and used in the company are stipulated. This means that the companies have to prepare financial statements in line with the legal system. The rules state the requirements of the publication of the financial statements. The details and the rules of accounting systems differ for the companies that are non profit oriented and the companies that are profit oriented. Special regulations are not contained in the civil law and the companies ask help from the auditors if they are faced with a problem and the taxation professionals.

2.2  Financing methods

Countries differ in the financing methods of the companies and the entities, and the forms by which the companies are made are different. In some countries, companies are financed by the banks and in other countries they are financed by the proprietors. The financial reporting and the accounting systems changes depending on the main financiers. The country that does not depend on the banks for financing and the funding does not major on the creditors while presenting the financial information and also while preparing the accounts. The two methods dictate the way the accounting system is shaped and the decisions that are made by the people preparing the accounts.  The financing methods in Singapore has influenced and shaped the accounting system.

2.3  Inflation

Calculation of the profits and evaluation of assets can be used to measure the effects of inflation in the country. There can be problems when there is high inflation and the historical accounting principle is used in the evaluation of the assets. Inflation effects are seen in conversion of the foreign currency and when the fixed assets are being evaluated. Inflation for different countries differs and there is a need of proper accounting systems in the preparation of accounts in the time of inflation. The inflation affects and shapes the accounting system and practices in Singapore because the factor must be taken into account to prevent presentation of wrong accounting information.

2.4  Quality of education

The quality of accounting education in Singapore affects the accounting system and the methods that are used in the accounting.  Different countries prepare different accounting systems depending on the accounting standards in the country. If the accounting standards are low it does not mean that the country is not using the proper accounting standards but it is depends on the economy of the country and the extent of their needs. It is good for a country to boost its education in the accounting profession for the enhancement of good accounting standards. The education in Singapore for the accounting profession should be in line with the Asian Accounting system.

 3.0 Factors influencing accounting systems in Canada

Canada has been using the Anglo- American Accounting in the systems of its accounting. There are factors that have affected the country in accounting system and the factors have helped in shaping and influencing the accounting system and the practices that are used in the country. Some of the factors that affect the accounting system of the country are explained below.

3.1  Capital market

The capital market of a country shapes and affects the accounting system. The capital market in this account involves the globalization level of a capital market and the development of the financial instruments. The capital markets influence the financing systems of a country in that the system has to change to be able to conform to the capital market system of the country. Some business entities rely on funding from the external sources and some rely on earned capital. The main funding of the business entities may either be from the banks or from the capital markets and this affects the financial reporting system of a country. The financial reporting system is affected by the investors who may be individuals, state or the banks and it is also affected by the users of the information and the needs they have for the in formation. Different users of the accounting information need to receive the information that is useful to them. The investors and the creditors in Canada need different kind of information from the business and this affects the accounting systems. The banks and the association to business entities also affect the financial information needs of the country. If the major source of funding is from a bank, the information on the financial reports mostly deals with the information for the creditors and is usually focused on the protection of the creditors and on their needs. In this system, the banks get the information they need by directly accessing the financial reports and personal contacts with the entities.  According to Beke, (2010), in Canada, the investors are market oriented and they trust in financial statement in the decisions they make. This makes the publication of the accounting report in the country to be crucial.

3.2  Financial reporting system

Another factor that influences the accounting system in Canada is the financial reporting system which may be dual or singular. Singular or dual reporting system means that the reporting system may be joint or separate for the taxation needs and the business needs. In Canada, the financial reports that are used by the external users are independent of the tax reports and so the singular reporting system is used. The tax regulations are independent from the accounting systems regulation. In this system, the purposes of accounting are different being that reporting can be done for the purpose of financial reporting or taxation purposes. In this system, the people who prepare the accounting systems have to learn the taxation systems that are used and the systems that are used in the financial accounting. The reason for the difference is the accounting system and it may also be caused by the legal system or the taxation systems of the country. This type of financial reporting system has affected the accounting system in Canada and has made it different in that it cannot be compared with the countries that account for dual reporting systems.

3.3  Legal system

Roman law influences the accounting systems in the standards and the procedures of the systems. The regulations of a country prescribe the principles and the rules that are to be used in a comprehensive and a detailed way. It is always almost impossible for the accountants in such countries with such regulations and rules to improvise on the accounting principles or to interpret the accounting rules. The accountants are supposed to apply the legal requirements that are detailed and prescribed by the regulations and the rules and also they are supposed to protect the creditors. According to Ben and Zeghal, (2006), the accounting system used in Canada is common law. The financial statements are done and reported according to the standards of accounting and the tax rules are separate. The tax reports are reported differently from the accounting standards and from the accounting framework. This affects the accounting system in Canada because the expenses are not allowable in the calculation of the taxable income. Instead it is calculated by the use of tax law and at times it is done according to the codified tax law. The company law does not apply in the calculation of the taxable income and the earnings that are taxable do not interact with the accounting earnings. As stated by Chariri, (2011), in Canada the taxable earnings and the accounting earnings are calculated differently.  The legal system in the country helps in giving the regulations which supports the information needed by the stakeholders, shareholders, analyst and other users of the financial information. It also gives the rules that determine the timing of accounting presentation.

3.4 Political systems

The political factors affect the financial reporting system and the accounting system. The countries that were colonised and conquered use the accounting systems of the countries that colonised them. The accounting systems that are used in such countries may not fit the economic situation and the needs of the country but they are still used. There are some countries that were colonised and they use new accounting system depending on their cultures and their political influences and background. As illustrated by Cerne, (2010), accounting system of a country can be influenced by the neighbours because of their geographical positions. Also if a country has a large export market in another country, it may adopt the accounting system of that country because of the businesses that might be going on, a good example being the U.S and Canada.   

3.5 Quality of accounting education

The level of accounting education and the quality in a given country determines the accounting system. If the level of accounting is low in a country, the status of accounting profession will be low and the accounting system will be affected. The accountants in a country should not be brought from another country that is advanced or sent for further education. This is because the countries are different and the systems of accounting might be different. Developed countries have developed accounting systems. A country depending on the environment on which it operates determines the accounting level and the education level of the country. The accounting system that is used in Canada depends with the level of education for the professionals.

3.6 Levels of inflation

In case there is high inflation in a country, a suitable accounting system should be adopted because of the conditions. There is accounting for inflation in the countries that experience high inflation and it might not be applicable for other countries which hardly experience inflation.

4.0. Dimension Values

4.1 Professionalism versus statutory control

As suggested by Gray, (1988), the professional judgement of an individual in this value is given the preference. The professionals in the accounting are supposed to maintain their self regulation. This is opposed to the legal requirement that requires a professional to comply with the statutory control and the legal requirements. The accountants are allowed to have control of the accounting standards because of private self regulation. This is mostly done in the countries that practice Anglo-American Accounting and the much developed countries. This is why the accounting information is presented as a true and fair view meaning that it depends with the judgement of the accountant. The value of professionalism versus statutory control allows some disclosures that are not needed by the law and that may be contrary to the law at times.  Canada uses Anglo- American and so it uses the professionalism versus statutory control value.

       4.2 Uniformity versus flexibility

According to Radebaugh et al, (1997), Uniformity versus flexibility gives preference to the uniformity of accounting systems in different companies. Uniformity requires that the standards that are used be used for a period of time and be consistent. The value is opposed to the flexibility that companies may change their accounting values because of different circumstances that may occur in individual companies. Comparability, uniformity and consistency are important accounting systems in the world. As suggested by Hann, (2007), the value of uniformity versus flexibility has been interpreted in different ways. The consistency can be within the countries or it can be between different companies depending on the interpretations. Some countries have been using the uniform accounting systems to achieve their microeconomic goals and to facilitate national planning. Some countries use the intercompany comparability because they want to have flexibility in the accounting systems they use. As suggested by Ding et al, (2004), the countries that prefer strong uncertainty avoidance are the ones that give preference to the uniformity value. The uniformity system is concerned about the law and there is need for regulations and rules for the values to be attained. The law that promotes uniformity is accepted in the society with a large power distance.

4.3 Conservative versus Optimism

The value in the accounting system gives more preference to the approach that helps in coping with the uncertainty for the future events that may occur. The cautious approach is opposed to the approaches that are risk taking and they are more optimistic. This accounting valuation is the most ancient method of the accounting. As stated by Rolim, (1998), Conservatism is used in profit reporting and it varies with countries. In the implementation of the parallel simulation protocol, conservative versus optimistic is used. The approaches that are used include the programmability, performance and other mechanisms that would allow the programmer to apply the performance.

4.4 Secrecy versus transparency

Secrecy versus transparency gives preference to the disclosure and the confidentiality of the accounting information of the business. As Fardela, (2011), puts it, the value requires that only the people who are close to the management of the company or the business enterprise are supposed to know and access the financial information of a country. This is opposed to the transparency which requires the accounting information to be open to all and be transparent. Confidentiality which is also called the secrecy is fundamental in the accounting. The level of secrecy varies with different countries.

4.5 Long term versus short term

As Confucian work dynamism international Business Cultures, (2011), states, long term versus short term dimension was added after the other four value dimensions with the main aim of distinguishing east and west thinking. The long term orientation has been characterised by a sense of persistence. The relationships in the long term orientation are ordered by observing and by status and they are also characterised by thrift. On the other hand the short term orientation is characterised by tradition and respect. Stability and personal steadiness are also characterised with the dimensions.


Both countries may be influenced by the same factors but the level of influence is different given the geographical locations of the countries and the different systems of accounting that are adopted. Each country uses the best accounting principles and there are rules and regulations that are used by each country. The use of Anglo- American Accounting by Canada has been influenced by different factors that suit them and also the use of Asian accounting by Singapore has been influenced by different factors. Dimension values in the accounting systems are preferred differently. The values that are used in Canada are different from the ones that are used in Singapore. Geographical location has contributed to the difference together with other factors.



















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